Losses on US Stocks: Set Off and Carry Forward Rules

If some of your US shares are below what you paid for them, the loss is not wasted. Indian tax law lets you set a capital loss against your capital gains in the same year, and carry any unused loss forward for up to eight years, provided you file your return on time. Booking a loss before 31 March can cut the tax on gains you have already made this year.

Key points

• A short-term capital loss (shares held 24 months or less) can be set off against both short-term and long-term capital gains.
• A long-term capital loss (held more than 24 months) can be set off only against long-term capital gains.
• Capital losses cannot be set off against salary, dividends, interest or any other head of income.
• Unused capital losses can be carried forward for eight years, but only if you file your return by the due date (31 July for salaried people and others without business income, who file ITR-1 or ITR-2).
• Losses and gains are worked out in rupees, so the dollar-rupee rate can turn a dollar loss into a rupee gain, or the other way round.
• The current tax year, 2026-27, ends on 31 March 2027. A loss counts in the year you sell, not the year the price fell. US markets are shut on Good Friday, 26 March 2027, so do not leave it to the last day.

The basic rule: same-year set-off

Each sale produces a gain or a loss, and these are first netted within the year, inside the head "Capital gains". The Income-tax Act, 2025 and the Income Tax Department's guidance set two limits [1][2][3]:

1. A short-term capital loss can reduce short-term capital gains or long-term capital gains. 2. A long-term capital loss can reduce only long-term capital gains.

So a long-term loss is less flexible: it cannot touch short-term gains, which are usually taxed at the higher slab rate.

Capital losses stay inside the capital gains head. The same guidance says a loss under "Capital gains" cannot be set off against income under any other head 1]. A loss on US shares will not reduce the tax on your salary or on your US dividends, which are taxed as "Income from other sources". See our [US dividend tax guide.

Which gain should a short-term loss reduce?

For US shares held by a resident, short-term gains are taxed at your slab rate and long-term gains at 12.5% under Section 197 of the Income-tax Act, 2025 (Section 112 of the old Act), both plus 4% health and education cess [4]. Long-term gains on US shares get no ₹1.25 lakh exemption. That exemption is in Section 198 (old Section 112A) and needs securities transaction tax to have been paid, so it covers Indian equity shares and equity funds, not shares bought on a US exchange [5].

If you are in the 30% slab, a rupee of short-term gain costs about 31.2 paise in tax, while a rupee of long-term gain costs 13 paise. So, when you have both kinds of gain, it usually saves more to use a short-term loss against short-term gains first.

Carry forward: eight years, one condition

If your losses are bigger than your gains for the year, the unused part is carried forward. Under Section 111 of the Income-tax Act, 2025, which applies from tax year 2026-27, a capital loss can be carried forward for up to eight tax years after the year it arose [3]. The 1961 Act had the same eight-year limit [1].

The carried-forward loss keeps its character:

• A carried-forward short-term loss can be used against future short-term or long-term gains.
• A carried-forward long-term loss can be used only against future long-term gains [3].

The condition that catches people out: you can carry a loss forward only if it was declared in a return filed on or before the due date for that year. Under the 2025 Act, Section 121 allows carry-forward only for a loss determined in a return filed under Section 263(1), which is the on-time return [6][7]. For an individual with no business or professional income, such as a salaried person filing ITR-2, the due date is 31 July after the tax year ends [7]. A resident who holds foreign assets, including US shares, must file by that date even if there is no tax to pay [7].

If you file a belated return, the loss can still be set off against gains of the same year, but the unused part cannot be carried forward [1][2]. In ITR-2 the loss has gone into Schedule CG and the carried-forward amount into Schedule CFL. Check the schedule names in the 2026-27 utility when it is released, as the forms are being updated for the new Act.

Losses from before April 2026

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. Losses from earlier years that were correctly reported in time are not lost. The transition provisions of the new Act preserve them, and they can be used for the rest of their original eight-year window, counted from the year the loss first arose [8]. A loss that was not eligible to be carried forward under the old Act (for example, because the return was late) does not become eligible now [8].

Losses are counted in rupees, not dollars

Your capital gain or loss on US shares is computed in Indian rupees. Amounts are converted at the State Bank of India telegraphic transfer (TT) buying rate under Rules 206 and 207 of the Income-tax Rules, 2026 (formerly Rule 115). For capital gains, Rule 206 names the last day of the month before the month of transfer 9][10]. In practice, and in our calculator, the cost is converted at the rate for the purchase and the sale value at the rate for the sale. As the rule names a single date, confirm the method with your CA; our [US stock tax guide has more.

On that method, the rupee can change the answer. Suppose you bought a share at $100 when the rate was ₹75 per dollar and sold it at $95 when the rate was ₹85:

• Cost in rupees: $100 × ₹75 = ₹7,500
• Sale value in rupees: $95 × ₹85 = ₹8,075
• Result: a gain of ₹575, even though you lost $5 per share.

The reverse can happen when the rupee strengthens. A red number in your broker app is not always a tax loss, so check each lot in the calculator.

Worked example: booking losses before 31 March

Priya is a resident in the 30% slab. Her total income is below the level at which surcharge starts, so surcharge is not modelled here. If your income is higher, surcharge adds to both figures; the calculator shows the effect. In tax year 2026-27 she has already sold:

• Stock A, held 10 months: short-term gain of ₹3,00,000
• Stock B, held 3 years: long-term gain of ₹2,00,000

She still holds two loss-making positions:

• Stock C, held 8 months: rupee loss of ₹2,50,000 if sold now
• Stock D, held 30 months: rupee loss of ₹1,50,000 if sold now

If she does nothing before 31 March 2027:

• Tax on short-term gain: ₹3,00,000 × 31.2% = ₹93,600
• Tax on long-term gain: ₹2,00,000 × 13% = ₹26,000
• Total: ₹1,19,600

(31.2% is the 30% slab plus 4% cess; 13% is 12.5% plus 4% cess.)

If she sells Stock C and Stock D before 31 March 2027 (say, by 30 March):

• Long-term loss of ₹1,50,000 against long-term gain: ₹2,00,000 − ₹1,50,000 = ₹50,000 taxable
• Short-term loss of ₹2,50,000 against short-term gain: ₹3,00,000 − ₹2,50,000 = ₹50,000 taxable
• Tax on short-term gain: ₹50,000 × 31.2% = ₹15,600
• Tax on long-term gain: ₹50,000 × 13% = ₹6,500
• Total: ₹22,100

Tax saved: ₹1,19,600 − ₹22,100 = ₹97,500. As a check: ₹2,50,000 × 31.2% = ₹78,000, plus ₹1,50,000 × 13% = ₹19,500, which also gives ₹97,500.

She could not have used Stock D's long-term loss against Stock A's short-term gain. With only short-term gains, it would just be carried forward.

What if the loss is bigger than the gains? Say next year she has a short-term loss of ₹4,00,000, a short-term gain of ₹1,00,000 and a long-term gain of ₹1,00,000. The loss wipes out both gains, and ₹2,00,000 of short-term loss is carried forward, provided she files ITR-2 by the due date.

Things to check before you sell for a loss

• The sale must be real. Booking a loss means actually selling the shares at the market price. Keep your broker's trade confirmations. India does not have a specific rule like the US "wash sale" rule, but a transaction with no real purpose other than a tax loss can be questioned, so get advice before selling and buying back the same shares straight away.
• Holding period resets if you buy back. Shares you buy again start a fresh holding period. They will be short-term for the next 24 months.
• Advance tax. Booking a loss reduces your gain for advance-tax purposes too, but only from the instalment after the sale. A loss booked after 15 March does not undo interest on instalments that were short earlier. Our post on advance tax on US stock gains covers the 15 December and 15 March instalments.
• No US tax benefit, and none needed. The US generally does not tax a non-resident alien's capital gains on shares, unless the gains are connected with a US business or the person is in the US for 183 days or more in the year [11]. For most Indian residents, a US share loss has no US tax use; it matters only in India.
• Residency. These rules are for residents of India. For non-residents and those who are resident but not ordinarily resident (RNOR), gains on US shares are generally not taxed in India unless the money is received in India, so the loss question works differently. Residents must also report US holdings in Schedule FA, which follows the calendar year.
• RSUs and ESPP shares. For shares from an employer plan, the cost is the fair market value already taxed as salary, not zero. See our RSU tax guide before working out a loss.

Putting it together

List the lots you sold this year and the ones you hold at a loss, work out each in rupees, and see what a sale before 31 March would save. Then file ITR-2 by the due date.

The US stock tax calculator does the rupee conversion and the short-term and long-term split for each trade. The portfolio tracker and tax reports apply the set-off across all your trades for the year and show the amount left to carry forward; see pricing for what each plan includes.

This article is general information, not tax advice. Rules can change; please check with a chartered accountant for your own situation.

References

1. Set off and carry forward of losses under the Income-tax Law (1961 Act guidance), Income Tax Department, Government of India 2. Provisions for carry forward and set off of capital loss (FAQ, 1961 Act), Income Tax Department, Government of India 3. Section 111, Income-tax Act, 2025: Carry forward and set off of loss from capital gains, Income Tax Department, Government of India 4. Section 197, Income-tax Act, 2025: Tax on long-term capital gains, Income Tax Department, Government of India 5. Section 198, Income-tax Act, 2025: Tax on long-term capital gains in certain cases, Income Tax Department, Government of India 6. Section 121, Income-tax Act, 2025: Submission of return for losses, Income Tax Department, Government of India 7. Section 263, Income-tax Act, 2025: Return of income, Income Tax Department, Government of India 8. Can you carry forward stock and mutual fund losses under the 1961 Act to the Income-tax Act 2025?, Upstox News 9. Rule 206, Income-tax Rules, 2026: Rate of exchange for conversion into rupees, Income Tax Department, Government of India 10. Rule 207, Income-tax Rules, 2026: Telegraphic transfer buying rate, Income Tax Department, Government of India 11. The taxation of capital gains of nonresident students, scholars and employees of foreign governments, Internal Revenue Service (US)